Content Providers Volunteering to Pay Network Providers: Better than Neutrality?

TL;DR

This paper uses a game-theoretic model to analyze how network neutrality regulations impact user welfare, revealing that allowing content providers to pay network providers can increase market entry and investments, but the optimal regime depends on specific parameters.

Contribution

It introduces a novel game-theoretic framework where content providers choose charges, showing that non-neutral regimes can enhance market entry and investments, challenging traditional assumptions.

Findings

More CPs enter under non-neutral regimes with payments.

ISPs tend to invest more in non-neutral regimes.

User welfare depends on specific parameter settings.

Abstract

This paper studies the effects on user welfare of imposing network neutrality, using a game-theoretic model of provider interactions based on a two-sided market framework: we assume that the platform--the last-mile access providers (ISPs)--are monopolists, and consider content providers (CPs) entry decisions. All decisions affect the choices made by users, who are sensitive both to CP and ISP investments (in content creation and quality-of-service, respectively). In a non-neutral regime, CPs and ISPs can charge each other, while such charges are prohibited in the neutral regime. We assume those charges (if any) are chosen by CPs, a direction rarely considered in the literature, where they are assumed fixed by ISPs. Our analysis suggests that, unexpectedly, more CPs enter the market in a non-neutral regime where they pay ISPs, than without such payments. Additionally, in this case ISPs tend to invest more than in the neutral regime. From our results, the best regime in terms of user welfare is parameter dependent, calling for caution in designing neutrality regulations.